The Federal Reserve's interest rate cut in December is a foregone conclusion, but this may not be good news! Market worries about the consequences are intensifying.
The Federal Reserve is almost certain to cut interest rates at the December meeting. Friday's employment report provided enough justification for this: November's non-farm employment growth exceeded expectations, the unemployment rate rose slightly, giving the Federal Reserve room to act, making the rate cut seem less reckless. Data from the Chicago Mercantile Exchange shows a 90% chance of a rate cut.
However, is a rate cut really a good thing? Critics argue that the Federal Reserve's actions pave the way for high-risk speculation, especially in the context of persistently high inflation and rising wages. The financial environment appears loose, inflation targets are far from being met, and market concerns are escalating.
The timing may not be right; economists warn of the risks of a rate cut.
Economists are not buying into the Federal Reserve's rate cut measures. Economists like Chris Rupkey believe that with the job market still strong, the Federal Reserve should not intervene, as a rate cut might exacerbate inflation. Moreover, some analyses point out that the current core inflation rate is still above the target, and wage growth has not shown signs of slowing.
The risks of a rate cut in a loose financial environment.
Although the Federal Reserve claims that current interest rates are "too tight," the financial environment is exceptionally loose. The strong performance of the stock and bond markets, along with declining mortgage rates, suggests that the Federal Reserve's interest rate policy may not be exerting enough pressure on the economy. This raises doubts about the consequences of a rate cut.
What will the future hold?
Federal Reserve Chairman Powell is confident in the U.S. economy, but not all officials share this optimism. Cleveland Fed President Mester recently stated that the pace of rate cuts should slow, waiting for more evidence that inflation is falling back to target levels. If a rate cut occurs in December, it would mean a significant reduction in interest rates within just three months, increasing uncertainty in the market.
What economic risks lie behind the rate cut? Can the Federal Reserve accurately control the pace of this adjustment? Stay tuned, and let's focus on key data together to seize the opportunity!